The most common insurance that most people buy is coverage for their personal autos, primarily because all states require the vehicle owner to have personal auto insurance.
The specifications of coverage vary by state, particularly as to minimum limits, personal injury protection and uninsured and underinsured motorists coverage.
It’s also common for all members of a household to be covered under one policy, for example, mom, dad and teenage drivers. But the policy definition of a “family member” can be tricky, especially with respect to stepchildren and who is “occupying” the same residence.
There also may be questions about same-sex spouses or domestic partners who aren’t married.
Here are five things agents and brokers should review with clients who are buying or renewing personal auto policies to help them make the right decisions about coverage:
1. What is a private passenger auto?
Generally, according to the Insurance Services Office “Personal Vehicle Manual,” a personal auto policy may be written to cover private passenger autos with four or more wheels, such as the following:
- Private passenger autos. Four-wheel motor vehicles other than a truck type that are either owned or leased under contract for a continuous period of at least six months or more. Sport utility vehicles are not specifically mentioned in the ISO manual, but a typical SUV would fall into this category. Cars rented to others or used as a public or livery conveyance (for example, a taxicab or a limousine) are not eligible.
- Pickup trucks and vans. These vehicles are also eligible for a personal auto policy as long as they are not used for delivery or transportation of goods or materials, except delivery or transportation for farming or ranching or incidental to the named insured’s business of installing, maintaining or repairing furnishings or equipment. A pickup or van with a gross vehicle weight rating greater than 10,000 pounds is eligible only if a symbol is displayed in ISO’s “Symbol and Identification Manual.”
Although ISO’s “Personal Vehicle Manual” declares that vehicles with a gross vehicle weight rating over 10,000 pounds are eligible for coverage, the policy definition of “newly acquired auto” limits newly acquired vehicle coverage to a pickup or van with a gross vehicle weight rating of 10,000 pounds or less. This could cause a serious coverage gap if an insured replaces one large pickup with a similar vehicle of greater weight and assumes it is automatically covered.
2. Who is a ‘family member’?
Most policies define a family member as a person related to the named insured (or resident spouse) by blood, marriage or adoption. To qualify as a “family member” the relative must reside in the named insured’s household.
This definition becomes especially important when the policy defines an “insured” to include any family member or when it refers to vehicles not listed in the policy but owned by a family member. A ward or a foster child residing in the named insured’s household is also considered a family member.
Questions often arise concerning the family member status of children attending college or serving in the military, or children who move between the homes of their divorced parents. According to the ISO’s “Personal Vehicle Manual,” “a person in active military service with the armed forces of the United States of America is not considered a resident in the applicant’s household unless this person customarily operates the auto.” This statement, like other provisions in the “Personal Vehicle Manual,” may express ISO’s intentions, but it’s not part of the insurance contract.
3. Where does a stepchild actually reside?
Stepchildren and their place of residence present yet another challenge. The agent must make every effort to find out about stepchildren of driving age and with whom they live.
In one case, an insured’s stepson resided with his natural father. On occasion he would visit his natural mother and spend the night.
The boy had a serious at-fault accident while driving his father’s car. The judgment was in excess of the father’s policy limits, but the father’s insurer paid the limits. The injured party’s insurer paid the difference as underinsured motorists.
Then, the injured party’s insurer sued the mother’s insurer for the amount paid as underinsured motorists. Questions arose as to whether the stepson was a resident of the mother’s home and whether he was entitled to liability coverage under her policy.
The unfortunate problem is that this case has no clear-cut answer. Courts in various jurisdictions have determined residency based on the facts presented by each individual case and on state law.
One court found that a boy residing with his father following a divorce was not also a resident of his mother’s household. In making this decision, the court considered several questions:
- Did the child have a key to the mother’s house?
- Did he keep clothes there?
- Who claimed him as a tax exemption?
- Were visits regularly scheduled?
- Was he shown on his mother’s auto policy?
The court stated that more than physical presence was required in order to be a resident of a household. It added that other jurisdictions take into consideration the child’s living habits with both parents.
Agents and brokers will need to consult their state insurance laws to determine appropriate coverage in similar situations as well as the laws of the state in which the child lives if it’s different from the parent’s state of residence. In addition, family law definitions may come into play when households included blended families.
4. Who owns the eligible vehicle?
According to the ISO manual, eligible vehicles may be owned by either an individual or a husband and wife who reside in the same household. Any vehicle that is leased under a written agreement for a continuous period of at least six months qualifies as an owned vehicle.
If the Joint Ownership Coverage (PP 03 34) endorsement is attached, a personal auto policy can also be used in a situation in which there is a need to cover autos jointly owned by two or more of the following:
- Individuals, other than husband and wife, residing in the same household.
- Nonresident relatives who jointly own a vehicle together.
These situations might include an adult child who jointly owns a vehicle with a parent or domestic partners who jointly own a vehicle.
5. How are non-owned vehicles covered?
Generally, the personal auto policy provides adequate coverage in most cases for the use of non-owned autos, but sometimes an insured may need coverage for non-owned auto exposures that are available through an endorsement to the personal auto policy or a business auto policy.
For example, a sales representative who owns a personal vehicle and also is provided with a company car has no liability coverage under the personal auto policy for the use of the company car because an exclusion usually precludes coverage for any vehicle (other than the named insured’s covered auto) that is furnished or available for the regular use of the named insured. That sales rep may cover the liability and medical payments exposures of personal use of a company car by obtaining an endorsement to expand the regular liability and medical payments coverages to insure this additional exposure.
Likewise, a part-time limousine driver has no personal coverage while driving the employer’s limousine because the personal auto policy excludes coverage for vehicles used as a public or livery conveyance; however, an endorsement is available to expand the regular liability and medical payments coverages to insure this additional exposure.
A driver who doesn’t own a car still has auto-related exposures whenever the driver rents, borrows, uses, or even occupies someone else’s car. Even though a non-owner has no autos to list in a policy, this driver can still purchase a personal auto policy with a named non-owner coverage endorsement. Alternatively, executives whose only vehicle is a company-owned car may be protected by an endorsement to the business firm’s auto policy rather than a personal auto policy.